AMC has experienced a rollercoaster couple of years that took the theater chain from beleaguered pandemic victim to meme stock phenomenon. So what’s next?
AMC Entertainment Holdings Inc. AMC,
which describes itself as the largest movie theater company in the world, operated 1,004 movie theaters pre-Covid. But the pandemic hit the company hard, forcing the closure of movie theaters across the US in March 2020. As Covid-19 raged, AMC was left scrambling to raise cash and with the possibility of bankruptcy hanging over the company, its stock reached an intraday low of $1.91 on Jan. 5, 2021.
But just a few weeks later AMC, like GameStop Corp. GM,
was caught up in the social media-driven trading frenzy that turned it into a “meme stock” phenomenon. AMC used the steep rise in its share price to tap into equity and debt markets, raising $917 million in January 2021. At that time AMC Chief Executive Adam Aron said the new financing meant any talk of imminent bankruptcy “is completely off the table.”
Just a month earlier, AMC had secured $100 million in debt financing from Mudrick Capital as the company attempted to bolster its liquidity.
AMC’s meme stock status eventually enabled the company to raise a war chest of $1.8 billion for investments, although aspects of its strategy have left observers scratching their heads.
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Earlier this year AMC stunned Wall Street when it made a $27. 9 million investment in Hycroft Mining Holding Corp. HYMC,
a gold and silver miner that operates far outside AMC’s core business.
“It was definitely surprising,” Everett Millman, a precious metals expert at Gainesville Coins, told MarketWatch this week. “What is interesting about the Hycroft investment is that gold mining companies are considered more risky than owning gold.”
While AMC’s move appeared to come out of left field, it did keep the company in the spotlight. “I think it’s so something that is so bizarre, it would almost certainly attract people’s attention,” Millman said. “”Grabbing the headlines, there’s clearly an advantage to that for a meme stock.”
“ ‘The market could start looking at them as a risk in 2023. If they work through too much of their cash before they can fix all of the operational problems in their business, that’s when bankruptcy becomes a real risk.’”
Could we see more headline-grabbing AMC M&A? In March AMC CEO Adam Aron told CNBC that Hycroft bore a stark comparison with the theater chain a year prior. “It had great assets… but it had a cash squeeze, it had a liquidity problem,” he said, noting that AMC is an expert in raising money. The theater chain wants to use its war chest to find “transformational” acquisition opportunities, he added.
Nevertheless, much of AMC’s meme-stock luster has worn off since the heady days of 2021. The company’s stock, which is trading around $15.35 on Thursday, has plummeted 57.4% over the last 12 months, compared to the S&P 500’s SPX,
14% decline. AMC has plunged 43.6% this year, outpacing the S&P 500’s 21.4% fall.
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Certainly, AMC is a more streamlined business than it was entering the pandemic – the company now operates 950 cinemas, according to its website. There have also been headcount changes. According to its 2021 annual report, AMC ended the year with a total of 31,198 employees in 10 countries, approximately 21,392 of whom were based in the US and 9,806 were based internationally. Some 3,046 employees were full time. In 2020 AMC had a total workforce of 25,019, 3,449 of whom were full time. However, the 2021 total was down from the company’s 2019 total of 38,872 employees, which included 3,952 full-time employees.
Consumers are also returning to theaters, and studios have ramped up their blockbuster releases. During its recent fiscal first-quarter results, AMC reported better-than-expected revenue and a narrower loss. “AMC is no longer on its heels,” said CEO Aron.
Thanks partly to Sony Pictures’ SONY,
“Uncharted” and Warner Bros.’ WBD,
“The Batman,” AMC experienced its best quarter in two years, according to Aron. During the first quarter, AMC welcomed 39 million guests to its theaters, up from 7 million in the same period last year.
Since then, AMC’s stock has received a boost from the box-office success of “Top Gun: Maverick”
However, the fiscal first-quarter results also marked the company’s 11th consecutive unprofitable period.
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AMC’s financial health remains a cause for concern, according to data from RapidRatings, a company that assesses the finances of public and private companies.
“When you look at AMC, they are weak on our two fundamental elements for evaluating companies,” James Gellert, CEO of RapidRatings, told MarketWatch. Gellert pointed to RapidRatings’ Core Health Score, which evaluates medium-term sustainability based on operational efficiency and competitiveness and also its Financial Health Rating, which measures short-term default risk.
RapidRatings’ system evaluates financial statements and processes them through an algorithm to produce a financial score.
The Financial Health Rating for AMC was an “unimpressive” 30 out of 100 for the four quarters ending March 31, 2022, according to a recent RapidRatings report on the company. The theater chain’s Core Health Score was 25 out of 100.
While AMC has shown adequate earnings results, the company shows weakness in leverage and liquidity and has a negative cash flow story, according to RapidRatings. “AMC Entertainment Holdings Inc. displayed negative Cash from Operations in the most recent year-end period,” it said, in its report. “As such, the company was unable to cover any portion of capital expenditures or debt balances through internally generated cash flow.”
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AMC had net operating cash flow of negative $615 million at the end of 2021, compared to net operating cash flow of negative $1.06 billion at the end of 2020 and $579 million at the end of 2019.
The company ended 2021 with $1.62 billion in cash and long-term investments, up from $320 million at the end of 2020 and $276 million at the end of 2019. However, FactSet data show that AMC had $10.12 billion of long-term debt at the end of 2021, compared to $10.74 billion at the end of 2020 and $9.74 billion at the end of 2019. Earlier this year the Wall Street Journal reported that AMC was in talks to refinance some of its high-yielding debt, part of an effort to lower interest payments and stretch out maturities.
The company also faces stiff competition from streaming services such as Netflix Inc. NFLX,
and Walt Disney Co.’s DIS,
Disney+. Streaming has been “like a tidal wave” for the company, according to Gellert. “They have not risen to the competitive challenge pre-Covid, much less during Covid,” he added.
While AMC has had access to capital in recent years, that could change in an uncertain economic environment, according to Gellert. “Those who are evaluating them have to be extra cautious about the forward capital markets environment,” he said. “It will be very difficult for companies of this quality to raise capital moving forward.”
AMC had available liquidity, including cash, of almost $1.38 billion at the end of March.
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Gellert says that AMC’s cash position should be fine for 2022, but warns the company could run into issues next year. “The market could start looking at them as a risk in 2023,” he said, adding that their “fuse life” is burning. “If they work through too much of their cash before they can fix all of the operational problems in their business, that’s when bankruptcy becomes a real risk.”